Spatial Distribution of Production and Education

There is no doubt that people like to migrate to large cities because they can acquire a wider range of products and jobs, but also because they can exchange information and ideas in an easier way. In this respect, we will attempt to explain the formation of metropolitan areas through a general equilibrium model in which concentration emerges not only from the interaction between increasing returns to scale at the firm level, transport costs and the mobility of labor, but also from human capital externalities. Our aim is to underline the role of human capital as a factor that fosters both the agglomeration of the economic activity and cities' growth. The paper shows that there is new scope for government activities.